BusinessDay contributing editor

It’s not just Australian retailers facing restructuring. As global market confidence sweats on happy GDP numbers being produced by Beijing this Friday, it’s symbolic of the evolving China that Sam Sham Wai-kuen is closing down his rugby jersey shop in Hong Kong’s Stanley Market.

For nearly 15 years, Sam’s stall down the Fort end of the Stanley alleys has been an institution for jersey collectors, or anyone wanting to get into theme for the annual rugby 7s festival. Think of a nation and there’s a good chance you could buy its strip for $12 or $15, depending on quantities and the exchange rate of the day. And he nearly gave away Greg Norman golf shirts too.

But it’s coming to an end.

“Sam, how can this be? Why close the best shop in Stanley?”

“They’ve moved production to Vietnam. I don’t have any contacts there. Have to pay money under the counter. And no quality guarantee.”

The affable Sam’s facial expression says more than his words about his disgust at the idea of poor quality and corruption.

“Maybe I’ll try a jewellery shop. Or handbags.”

I don’t know that Sam will enjoy the same badinage with jewellery or handbag shoppers that he’s had with the old rugby behemoths who satisfied all their gift requirements for those at home at the one inexpensive stop, but he still has to feed his dog and so is restructuring as the tectonic plates of business shift and grind.

And he’s only one of seven billion of us steadily doing so. Up the Pearl River from Stanley, Zheng Yongjiang was telling his generator business story to the South China Morning Post during the Canton Trade Fair in October (yes, mercifully it hasn’t been changed it to the Guangzhou Trade Fair) :

“His factory has been robbed, he cannot move around in public without armed guards, and the business climate couldn't be more alien. Yet, Zheng Yongjiang believes that moving some of his production lines to Angola is one of the smartest things he ever did.

“Standing at his booth in the Canton Fair complex, Zheng's face lights up as he greets clients from Angola who have come to renew contracts.

"German clients accounted for half of my total sales last year but they are down to 15 per cent now as they have significantly scaled back orders,’ he says. Buyers from Angola, Congo and Nigeria, on the other hand, now take in half of what he produces. Africa is what powers Zheng's generator business.”

You might have noticed in the fine print of the discussion about China’s latest maybe-too-good trade figures a line about the US overtaking Europe to again be China’s biggest export market. It wasn’t entirely true.

Yes, treat the USA and the European Union as single markets and they vie with each other for top place, but that’s only because the emerging markets are not a single entity – they’re taking nearly half of what China makes and growing nicely while Europe stalls.

The restructuring of a Chinese generator business and a rugby jersey shop are anecdotal evidence of two of the three big themes not commonly understood in the old, rich-but-fading world:

China is successfully outsourcing low-value manufacturing as it moves up the value chain and adapts to becoming a relatively higher wage economy, to becoming a richer nation. Vietnam and plenty of others can sew buttons on while China makes Apple’s i-thingys for the wealthy and trains and power stations for all. It doesn’t happen overnight and there will be plenty of cheap stuff pouring out of factories forever pushing further into China’s cheaper west, but it’s happening sure enough.

China was already busily diversifying its markets before the North Atlantic recession hit and hastened the process. Both by government plan and entrepreneurial instinct, China’s business people want to be were the growth is. The old rich world matters a little less every day.

And the biggest theme is that exports aren’t such a big deal anyway. Time and again, commentary on China sinks into the usual mercantilist view of wily Orientals stealing American manufacturing jobs to fuel their growth. To the extent that it was ever true, it was so last century. Export-driven growth was an early stage of China’s economic revolution. Net exports do stuff all for China’s GDP growth these days. The biggest single driver has long since been infrastructure and construction which in turn is being challenged by the move to greater consumption growth. China’s export business of course remains important, but it’s not its raison d’etre.

Friday’s important Chinese statistics should confirm that the September quarter was the low point for Chinese growth in this cycle – if “only” 7.4 per cent growth by the world’s second-biggest economy can be considered “low”. The noise around China’s slowdown last year with all the Chicken Littles grabbing quick headline space amidst plunging commodity prices already looks rather silly

(Actually, it was silly at the time if the fundamental story was understood. There are plenty of examples, but one that lodged in my mind for this sort of occasion was the effort by UBS global economics managing director, Paul Donovan, who told the AFR last year that China would grow by 5.5 to 6 per cent over the next two years and that it didn’t really matter much from a global perspective anyway. That’s UBS – the shrinking Swiss bank that really doesn’t matter much.)

That said, the current iron ore price surge is just as unsustainable as the 2012 dive – something around US$125 a tonne should eventually prove more realistic for a while yet. And China’s growth rate must slow. We want it to slow. Slowing is a good thing for a beast that size, as long as it’s done steadily enough to keep the masses from revolting.

While it’s happening, the Shams and Zhengs will get on with adapting and changing their business models, be they retail or manufacturing. Sam was matter-of-fact in telling me about the jersey production moving to Vietnam – he wasn’t complaining about globalisation and cheaper Vietnamese labour. And certainly wasn’t blaming his problems on internet shopping being exempt from GST.

Michael Pascoe is a BusinessDay contributing editor – and rugby fan, if you hadn’t noticed.

36 comments

We could adapt and dare I say, compete with anyone else in the world if we didn't have the worst IR laws on the planet. We are babies in this country. The idea we need some bloated ,union dominated bureaucracy called Fairwork to tell us how to conduct business is ludicrous. Our cost structures are too high. The car makers can't afford these high wages and are only able to pay them with free money from the government. Once we see some of these sectors stand on their own two feet, then the lectures from Pascoe & co can continue. Even with free money these companies are shedding staff. Boral is the tip of the iceberg as business revolts against Fairwork and their stifling rules that have us fighting with one arm tied behind our backs. I wonder what the chap in Hong Kong or anyone in Asia would make of Fairwork.

Commenter

Brisbane Bear

Location

Brisbane

Date and time

January 16, 2013, 12:44PM

While I agree there is too much red tape, I think what a person in HK or Asia will do is just get on with it. E.g., China has lots of rules and checks also, but you provide some extra incentives to the local officials, make some token changes and you'll pass the inspection.

Our business culture is too conservative, we prefer to import ideas and products over innovation most of the time. Given our cost structures (yes, partly due to the red tape and our property prices), we really should be competing on innovation.

Commenter

DS

Date and time

January 16, 2013, 1:16PM

Of course BB its all the Labor parties problems, for introducting the Fairwork Act imagine if we still had the IR system you are advocating (Workchoices) the woes we are facing are not a phenomenon of the last 5 years these offshoring and unfortunate job losses have been on our landsape for many decades, and of course it has nothing to do with the high AUD or global uncertainty.

Fairwork the Job destroyer it has created 750000 job have lokk at Greece Spain Portugal 25% - Australia 4.9 - % 5.4 % each please take a deep breath BB that will help your anxiety.

Commenter

Buffalo Bill

Location

Sydneys Northshoe

Date and time

January 16, 2013, 2:55PM

Hey Buffalo Bill,

It aint me who is anxious, it is Paul Howe who is popping a poofer valve. It is Paul Howe using words like 'drastic' and it is he who is predicting the end of manufacturing. Lets see how many of these 750000 jobs evaporate just as quickly as they appeared. Panic will set in shortly and we are not even into Feb yet.

Commenter

Brisbane Bear

Location

Brisbane

Date and time

January 16, 2013, 3:43PM

Buffalo Bill - The only jobs "created" in Australia recently have been in mining (inspite of Labor rather than because of) due to the mining investment boom, in the public sector and in healthcare/aged care. The last two could be attributed to Labor but how long do you think those jobs will last when Labor runs out of other people's money to pay for them? Borrowing has its limitations as Greece will tell you.

Commenter

hbloz

Date and time

January 16, 2013, 4:41PM

BB and Hbloz

BB - you have been frothing at the mouth for so long I remember you predicting the end of the financial world as we know it was to be in March 13 good luck with your doomsday scenario.

HB - Im pleased to see you acknowledge jobs have grown under the Labor party especially during a massive world wide financial upheaval, Australia has always been a one trick pony that is under Menzies and co we rode on the sheeps back under Howard / Costello and now Rudd / Gillard we are digging it up out of the ground.

Greece and Australia are diametrically opposed society so you are comparing chalk with cheese Greece and others have many many societal woes that we thankfully do not have.

Oh and by the way the LNP would still have borrowed monies during the GFC that id they even recognised its existence and we (Australia) have a AAA credit rating from three prominent financal institutions (first time in our history) that indicates we have the capacity to pay that back

Commenter

Buffalo Bill

Location

Sydneys Northshore

Date and time

January 16, 2013, 5:29PM

A business person accepting that a changing environment requires a change in focus and even operations - Australia was like that before we canme to believe the government was responsible for our standard of living.

Commenter

null

Location

Brisbane

Date and time

January 16, 2013, 12:50PM

Mr Pascoe wrote "........ the usual mercantilist view of wily Orientals stealing American manufacturing jobs to fuel their growth. To the extent that it was ever true, it was so last century" - yes, it may be so last century but it was definitely "true", not "ever true". How do you think China accumulated over 3 trillion dollars in reserves? Yet another example of a poor effort by Mr Pascoe.

Commenter

hbloz

Date and time

January 16, 2013, 12:55PM

The unions have priced workers out of jobs and now want something done about it?? Maybe take a 10% wage cut and a week less holidays? Would that save jobs in Australia? What exactly are people prepared to do to save their own jobs? 90% of current wages is better than 0% when the jobs are gone. We would have to be the stupidest country on the planet. At least they are putting the dole up $50 a week, that may help all these people who have lost their jobs these past two days. Fairwork the job destroyer is doing what it was designed to do. Stop complaining, Paul its your own fault.

At the risk of sounding like a cracked record, like you Mr Bear, imagine Australia with average pay competitive with emerging economies ... I'm sure business leaders would love having lots of citizens unable to afford the goods and services on offer.